Extended Stay America has considered offers to sell to Blackstone and Starwood Capital Group as far back as 2017, rebuffing multiple offers higher than the approximately $6 billion deal executives hope shareholders approve in time to close during the second quarter, according to proxy statements filed to the U.S. Securities and Exchange Commission.

On March 14, ESA executives announced the all-cash deal with a joint venture of Blackstone Real Estate Partners and Starwood Capital Group to buy both the company’s brand and management operations and its associated real estate for $19.50 per paired share.

The deal was approved unanimously by the board overseeing ESA's brand and management business and signed on to by all but two members of the board that oversees its associated real estate investment trust. As recently as a week prior to announcing the deal, board members raised concerns about the price and the timing.

According to the proxy filing, Extended Stay America President and CEO Bruce Haase voiced his strong support for a deal during a pair of special board meetings in early March, indicating that the company’s aging portfolio faced significant capital costs going forward despite his belief in internal efforts to improve performance and sell real estate to put a greater focus on franchising.

During a meeting on March 6 when Blackstone was offering $18.75 a share, proxy statements indicated a majority of board members favored a deal, but “a minority of directors were concerned that, given the recent rebound in stock prices in the hotel sector, potential for further recovery given the expected federal stimulus plan and increasing COVID-19 vaccinations, and the low interest rate environment, this was not the appropriate time to sell … and that the premium offered by Blackstone was not compelling.”

This led to a series of exchanges between the two sides and incremental price increases that culiminated on March 13 — just a day before the deal was announced — with Blackstone and Starwood Capital increasing their price to $19.50 per paired share with the provision that ESA eliminate a go-shop period in their agreement that would have allowed the company to seek better offers. Leaders at ESA and their adviser on the transaction, Goldman Sachs, said this was an acceptable concession due to the fact they were unlikely to get bidders other than Blackstone and Starwood.

On that day, the ESA boards decided to move forward on the deal, with REIT board members Simon Turner and Neil Brown indicating their opposition.

The deal process spanned more than three years, and over that time, Extended Stay America received various acquisition proposals from Blackstone, Starwood Capital and an unnamed hotel brand company, according to the proxy statements.

Through the vast majority of that period, Blackstone and Starwood Capital both made independent offers for ESA, not joining forces on the deal until early this year.

The initial offer came from Starwood Capital in July 2017 when executives approached ESA with interest in acquiring the company at a price range of $22 to $24 per share. Starwood executives backed away in September, expressing that a deal valued greater than ESA's share price — $20.20 at the time — was unlikely. Starwood’s initial offer spurred ESA’s executive team to engage with two other companies on a potential acquisition: Blackstone, which offered $19.50 a share in November 2017 and $20.75 a share in December 2017; and a third, unnamed entity that was not interested in a deal.

The ESA board didn’t find any of those proposals compelling at the time, according to the proxy statement. A year later, in July 2018, the company launched a review of strategic alternatives that included the possibility of keeping its real estate holdings and selling off its hotel brand and management business, but garnered no interest from potential buyers.

In September 2018, ESA executives engaged with two separate “publicly traded hotel franchising companies,” only one of which expressed serious interested in acquiring the brand and management business. That company, dubbed “Party B” in SEC filings, offered various proposals — all of which hinged on maintaining management of ESA's portfolio of extended-stay hotels, but with various different purchase prices and levels of performance guarantees — topping out at a $500 million proposal that included a $630 million annual guarantee for systemwide earnings.

ESA’s board ultimately decided to walk away from those negotiations in May 2019, noting the offers undervalued their brand and management business.

Starwood re-entered the picture in April 2020, after disclosing an 8.5% ownership stake in ESA. Starwood executives noted they believed shares were significantly undervalued at $6.43 a share but were at that point uninterested in pursuing an acquisition of the company. Starwood increased its ownership share to 9.4% by August.

In January, negotiations resumed in earnest when Blackstone’s Tyler Henritze reached out to ESA Chairman Douglas Geoga about an acquisition valued at more than $17 per paired share.

In the days and weeks following ESA’s announcement of a deal with Blackstone and Starwood, various investor groups have noted their dissatisfaction with the deal, contending it undervalues the company. As of press time, ESA’s stock is trading at $19.80 a share, 1.5% higher than Blackstone and Starwood’s current offer.

But investors' desires for change extend beyond the deal. The proxy statement indicates that Tarsadia Capital, which owns roughly 3.9% of ESA and has been a vocal opponent to the deal, was approaching ESA’s executive team about alternative structures for the company in August 2020.

The proxy statement indicates Tarsadia proposed ESA simplify its structure by allowing the management team to take the brand and management business private while spinning off the REIT, to be led by the same group of executives. ESA executives rejected this proposal, saying it gave “rise to significant conflicts of interest for the Paired Entities’ management, in addition to requiring substantial third-party capital to fund any such transaction.”

In February, Tarsadia indicated plans to nominate three board members, but board elections were delayed to allow the company to instead focus on the potential transaction.

Other ESA investor groups that have publicly opposed the Blackstone-Starwood acquisition include SouthernSun Asset Management, Cooke & Bieler, River Road Asset Management and Hawk Ridge.